Capital Raisers

The question of capital raisers and what is SEC/FINRA compliant and what is not, is coming up way more frequently under the current economic market (i.e., sponsors are seeking out additional sources of equity via other capital raisers or bird doggers)

Per the Securities and Exchange Commission (SEC), the terms "finders" and "broker-dealers" refer to different roles in the financial industry, particularly in the context of securities transactions.

Finders:

Finders are individuals or entities that help bring together parties for a securities transaction. Their primary role is to identify potential investors or businesses that may be interested in a deal. Finders typically have limited involvement in the transaction process and do not provide any additional services (such as negotiating the terms of the transaction, providing advice, or handling funds or securities). As a result, Finders are usually subject to less stringent regulatory requirements than broker-dealers.

In some cases, Finders may not need to register with the SEC or FINRA, but they must still abide by applicable state laws and regulations (every state has its own securities laws and regulations). The SEC has proposed a conditional exemption for finders, which would allow them to receive transaction-based compensation under certain conditions without registering as broker-dealers. However, the regulatory landscape for finders is evolving, and it's essential to consult current regulations, case law and SEC opinion letters to determine the registration requirements for Finders in specific situations. Yes, this is a gray area (albeit, light gray).

Broker-Dealers:

What are they? Broker-dealers are firms/individuals that are in the business of buying and selling securities on behalf of themselves (as dealers) or others (as brokers). They play a more extensive role in the transaction process compared to finders. Broker-dealers may provide services such as investment advice, negotiating the terms of transactions, executing trades, handling customer funds and securities, and maintaining proper records.

Broker-dealers must register with the SEC and become members of the Financial Industry Regulatory Authority (FINRA), which is a self-regulatory organization that oversees broker-dealers in the United States. Broker-dealers must also adhere to various rules and regulations, including capital requirements, financial reporting, supervision, and record-keeping, among others.

In summary, the main differences between finders and broker-dealers are their roles in securities transactions, the scope of services they provide, and the level of regulatory requirements they must meet. Finders primarily identify potential parties for a transaction, while broker-dealers engage in a broader range of services and face more stringent regulations.

If you are interested in more info as a Finder (need a Finder's Agreement) reach out to us at info@kaliserlaw.com.